Euro zone and Greece Clinch a Bailout Deal
Earlier today, Euro zone leaders reached an agreement with Greece on a third bailout to keep the cash strapped nation in the Euro zone following an extended night of deliberations between Greek and European officials. Though the details of the agreement are yet to be disclosed, it is likely that the Greek Prime Minister Alexis Tsipras might have agreed to most of his creditors’ demands in a bid to avoid a forced ejection from the single currency union. However, the Euro has reacted negatively to this development and is trading under pressure against its major counterparts.
With a light economic calendar across the major economies today, Sterling investors will focus on Britain’s consumer price inflation data scheduled tomorrow for further direction.
Pound Sterling – UK Markets
Sterling is trading on a firmer footing against the Euro this morning amid the absence of any notable macroeconomic indicators in the major economies today. The Bank of England will shortly publish results of the survey which will cover details of its secured and unsecured lending to households, small businesses and non-banking financial corporations for the second quarter. During this week, investors will particularly focus on June consumer price inflation data and the May employment report. Markets anticipate that the CPI report tomorrow will show benign inflation in the nation last month, falling back from a 0.1% rise seen in May and taking it further away from the BoE’s desired inflation target. On the other hand, there is greater optimism for headline wage earnings to move higher for May, raising speculation that the UK central bank might increase the key interest rate from a record low of 0.5% in the coming months.
The Pound rallied and moved above the 1.55 mark against the US Dollar on Friday after UK’s trade deficit unexpectedly narrowed for May.
US Dollar – US Markets
The US Dollar traded broadly lower against the majors on Friday. Hopes of a new bailout deal for Greece pushed the Euro higher against the greenback. Meanwhile, the Pound, which moved higher against the US Dollar on strong UK trade data, pared some of its gains later in the session on Friday after the US Fed Chairperson Janet Yellen stated that the central bank is likely to raise interest rates before the end of this year. However, she added that the pace of policy tightening could be gradual, considering the recent geopolitical developments, while emphasising that the course of the economy and inflation remains highly uncertain. The Fed Chief also expressed concerns ranging from weak earnings growth, low participation rate and disappointing productivity in the nation.
In the session ahead, the US government will publish the statement of its receipts and outlays for June. A string of notable economic releases are also due this week including retail sales, producer prices data, and June inflation data. Moreover, going forward, Janet Yellen is scheduled to deliver the central bank’s mid-year economic report.
Euro – European Markets
On Friday, the Euro limited its downside against the Pound amid optimism that debt laden Greece might secure fresh aid during the weekend. Greece requested a fresh bailout package from its international creditors last week to service its debt obligations for the next three years. However, by late Sunday evening, there was still no deal as Greek and European officials deliberated over a raft of measures including pension and market reforms in a bid to unlock additional funding.
However, the Euro has nudged sharply lower against the majors, despite a bailout deal between European and Greek officials. After months of negotiations over reforms, the Greek Prime Minister Alexis Tsipras has likely agreed to Euro zone leaders’ demands, though concrete details of the terms of conditions are still awaited. In the absence of significant economic releases in the Euro region today, investors will eye German and Spanish consumer price inflation data tomorrow, along with the ZEW survey report on Euro zone’s economic sentiment for July.
Other Currencies – Highlights
The US Dollar–Japanese Yen currency pair has edged above the 123 mark this morning. Demand for the Japanese currency has weakened as fears surrounding Greece seem to have eased. On the macro front, the final estimate of industrial output data released earlier in the day revealed that Japan’s industrial production dropped for May, albeit less than market estimates. Meanwhile, another report showed that the tertiary activity index dropped more than market expectations for May, while the previous month’s reading was revised downwards. However, these domestic economic releases had limited influence on the Japanese Yen against the majors.
In the session ahead, the headlines emerging from the EU summit regarding Greece will be closely monitored for further direction to risk appetite. Going forward, the Bank of Japan’s monetary policy meeting scheduled later this week will attract significant market attention.